East Daley: Market Mostly Overreacting To Recent FERC Tax Policies On Natural Gas Pipelines
New analysis indicates that nine of the most impacted midstream
companies that are covered by East Daley will experience minimal
downside risk to EBITDA from the new Federal Energy Regulatory
Commission (FERC) tax policies, but outliers and other factors do exist
requiring careful examination of midstream assets
East
Daley Capital Advisors, Inc., an energy assets research firm
redefining risk assessment for midstream energy companies, reports that
the new FERC tax policies will have modest downside risk on midstream
companies EBITDA, with most companies ranging from 0-5% of EBITDA at
risk potentially. The analysis includes the companies Boardwalk Pipeline
Partners, Enable Midstream Partners, Energy Transfer Partners, Kinder
Morgan, ONEOK, Spectra Energy Partners, Tallgrass Energy Partners, TC
Pipelines and Williams Partners.
“The issuance of the new FERC policies is just another example of how
the market quickly overreacted without first digging into the data,”
said Justin Carlson, VP and Managing Director, Research at East Daley
Capital. “Yes, the downside to earnings was initially a concern, but
deeper analysis shows that many companies will not be severely impacted
by the new FERC tax policies.”
The analysis does indicate that EBITDA at risk for a company could be as
high as 20% from the new FERC policies, but such a case is an outlier.
East Daley also reports that it is important to note that companies with
larger and older pipelines may be able to leverage modernization and
integrity projects when negotiating with shippers, changing the overall
return on equity (ROE) for the pipeline.
“This is why we recommend investors in midstream oil and gas companies
look closely at the details of the new FERC rulings and how those
rulings apply to specific assets in midstream companies when evaluating
risk,” said Carlson. “The market is clearly having difficulty
quantifying how these recent changes will impact company performance.
The way to dial into that impact is to lay out each midstream asset and
define the impact to overall company performance.”
Last week on Thursday, FERC ruled on two significant regulations
regarding cost-of-service calculations. The first will disallow master
limited partnership (MLP) interstate natural gas and oil and pipelines
to recover an income tax allowance in cost of service rates, which will
prevent the "double recovery" of taxes by the MLP. The second requires
natural gas pipelines, weather under the MLP or C-corp structure, to
file a one-time report on the rate effect of the new tax law and changes
to the Commission’s income tax policies. Since the FERC announcements,
most midstream companies have seen their unit prices drop substantially.
East Daley’s largest asset database of U.S. energy infrastructure and
patent-pending production allocation model, combined with in-depth
analysis, brings greater transparency to the midstream energy financial
market by providing investors and market participants with deeper, more
accurate data to inform their investment and strategy decisions.
Contact
East Daley for a copy of its official response to these
changes, titled: FERC Rules On Tax Changes.
Dirty
Little Secrets is East Daley’s most comprehensive
report on the U.S. oil and gas midstream sector. This report is used by
investors, institutional banks, fund managers, private equity, midstream
companies and E&Ps to understand how changing energy market dynamics
will impact the midstream sector in 2018 and beyond. This report is made
possible by East Daley’s dedicated team of midstream analysts,
leveraging the largest database of U.S. energy infrastructure that
delivers unprecedented clarity into the vast network of midstream assets.
About East Daley Capital Advisors, Inc.
East Daley Capital is an energy assets data and analysis research firm
that is redefining how markets view risk for midstream and exploration
and production (E&P) companies. In addition to using top-level financial
data to predict a company’s performance, East Daley delivers asset-level
analysis that provides comprehensive, fact-based intelligence. Supported
by a team of unbiased, experienced research analysts, East Daley
provides its clients unparalleled insight into how midstream and E&P
companies operate and generate cash flow. East Daley uses publicly
available fundamental data and intersects that data with a company’s
reported financials to asset-level adjusted-EBITDA and distributable
cash flow (DCF). The result allows for more informed portfolio
decisions. Founded in 2014, the company is based in Centennial,
Colorado. For more information visit http://www.eastdaley.com.
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